Self-Regulatory Organizations; Chicago Board Options Exchange, Inc.; Order Approving Proposed Rule Change and Notice of Filing and Order Granting Accelerated Approval to Amendment No. 1 Thereto To Modify the Distribution of the DPM Participation Entitlement for Orders Specifying a Preferred DPM Under CBOE Rule 8.87, 33564-33567 [E5-2939]

Download as PDF 33564 Federal Register / Vol. 70, No. 109 / Wednesday, June 8, 2005 / Notices At any time within 60 days of the filing of the proposed rule change, the Commission may summarily abrogate such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act.14 IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission’s Internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an e-mail to rulecomments@sec.gov. Please include File No. SR–BSE–2005–18 on the subject line. Paper Comments • Send paper comments in triplicate to Jonathan G. Katz, Secretary, Securities and Exchange Commission, Station Place, 100 F Street, NE., Washington, DC 20549–0609. All submissions should refer to File No. SR–BSE–2005–18. This file number should be included on the subject line if e-mail is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s Internet Web site (https://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the intervals for the options the BSE selected for the Pilot Program; (4) an assessment of the impact of the Pilot Program on the capacity of the BSE’s, the Options Price Reporting Authority’s, and vendors’ automated systems; (5) any capacity problems or other problems that arose during the operation of the Pilot Program and how the BSE addressed them; (6) any complaints that the BSE received during the operation of the Pilot Program and how the BSE addressed them; and (7) any additional information that would help to assess the operation of the Pilot Program. See Amendment No. 1, supra note 3. 14 For purposes of calculating the 60-day period within which the Commission may summarily abrogate the proposed rule change under section 19(b)(3)(C) of the Act, the Commission considers the proposal to have been filed on June 1, 2005, the date the BSE filed Amendment No. 1 to the proposal. VerDate jul<14>2003 18:08 Jun 07, 2005 Jkt 205001 public in accordance with the provisions of 5 U.S.C. 552, will be available for inspection and copying in the Commission’s Public Reference Room, 100 F Street, NE, Washington, DC 20549. Copies of such filing will also be available for inspection and copying at the principal office of the BSE. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File No. SR–BSE–2005–18 and should be submitted on or before June 29, 2005. For the Commission, by the Division of Market Regulation, pursuant to delegated authority.15 Margaret H. McFarland, Deputy Secretary. [FR Doc. E5–2940 Filed 6–7–05; 8:45 am] BILLING CODE 8010–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–51779; File No. SR–CBOE– 2004–71] Self-Regulatory Organizations; Chicago Board Options Exchange, Inc.; Order Approving Proposed Rule Change and Notice of Filing and Order Granting Accelerated Approval to Amendment No. 1 Thereto To Modify the Distribution of the DPM Participation Entitlement for Orders Specifying a Preferred DPM Under CBOE Rule 8.87 June 2, 2005. I. Introduction On November 10, 2004, the Chicago Board Options Exchange, Inc. (‘‘CBOE’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’) a proposed rule change pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 to modify the distribution of the Designated Primary Market-Maker (‘‘DPM’’) participation entitlement for orders specifying a certain DPM or eDPM (‘‘Preferred DPM’’) under CBOE Rule 8.87. The proposed rule change was published for comment in the Federal Register on December 1, 2004.3 The Commission received four comment CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 See Securities Exchange Act Release No. 50732 (November 23, 2004), 69 FR 69967. PO 00000 15 17 1 15 Frm 00124 Fmt 4703 Sfmt 4703 letters on the proposal.4 On January 13, 2005, the CBOE sent a response to the comment letters.5 On April 22, 2005, the CBOE filed Amendment No. 1 to the proposed rule change.6 This order approves the proposed rule change and simultaneously provides notice of filing and grants accelerated approval of Amendment No. 1. II. Description of the Proposed Rule Change The CBOE proposes to modify the participation entitlement for orders designated to a Preferred DPM on a oneyear pilot basis. Only a DPM or e-DPMs allocated a particular option class would be eligible for the ‘‘preferred’’ designation in such class, and the Preferred DPM participation entitlement would only be granted if the Preferred DPM were quoting at the National Best Bid or Offer (‘‘NBBO’’) at the time the order is received and executed electronically by the CBOE Hybrid System. In addition, the participation entitlement is based on the number of contracts remaining after public customer orders on the book have been filled. The proposed participation entitlement for the Preferred DPM is as follows: • If the Preferred DPM is an e-DPM, and the DPM is also quoting at the NBBO, then 2⁄3 of the participation entitlement would be allocated to the Preferred DPM and the balance of the participation entitlement would be allocated to the DPM; • If the Preferred DPM is an e-DPM, and the DPM is not quoting at the NBBO but one or more other e-DPMs are quoting at the NBBO, then 2⁄3 of the participation entitlement would be 4 See letter from Michael J. Simon, General Counsel and Secretary, International Securities Exchange, Inc. (‘‘ISE’’), to Jonathan G. Katz, Secretary, Commission, dated December 31, 2004 (‘‘ISE Letter’’); letter from Michael J. Simon, General Counsel and Secretary, ISE, to Jonathan G. Katz, Secretary, Commission, dated January 13, 2005 (‘‘ISE Letter #2’’); letter from Kenneth R. Leibler, Chairman, Boston Options Exchange Regulation (‘‘BOXR’’), to Jonathan G. Katz, Secretary, Commission, dated January 19, 2004 (sic) (‘‘BOXR Letter’’); and letter from Matthew Hinerfeld, Managing Director and Deputy General Counsel, Citadel Investment Group, L.L.C., on behalf of Citadel Derivatives Group LLC (‘‘Citadel’’), to Jonathan G. Katz, Secretary, Commission, dated April 6, 2005 (‘‘Citadel Letter’’). 5 See letter from Angelo Evangelou, Managing Senior Attorney, Legal Division, CBOE, to Jonathan G. Katz, Secretary, Commission, dated January 13, 2004 (‘‘CBOE Letter’’). 6 Amendment No. 1 added language to the proposed rule text to clarify that if an e-DPM is the Preferred DPM for an order and the DPM is not quoting at the NBBO, any remainder of the participation entitlement that is not allocated to the Preferred DPM would be divided evenly among the remaining e-DPMs quoting at the NBBO. E:\FR\FM\08JNN1.SGM 08JNN1 Federal Register / Vol. 70, No. 109 / Wednesday, June 8, 2005 / Notices allocated to the Preferred DPM and the balance of the participation entitlement would be divided equally between the other e-DPMs also quoting at the NBBO; 7 • If the Preferred DPM is the DPM, and one or more e-DPMs are also quoting at the NBBO, then 2⁄3 of the participation entitlement would be allocated to the Preferred DPM and the balance of the participation entitlement would be divided equally between the e-DPMs quoting at the NBBO; • If the Preferred DPM is not quoting at the NBBO, then the Preferred DPM participation entitlement would not apply and the ‘‘regular’’ participation entitlement set forth in subparagraph (b)(3) of CBOE Rule 8.87 would apply; and, • If the DPM and e-DPMs (collectively ‘‘DPM Complex’’) are the only CBOE members quoting at the NBBO then the participation entitlement applicable to the Preferred DPM would be: 50% when there is one other member of the DPM Complex also quoting at the NBBO; 40% when there are two other members of the DPM Complex quoting at the NBBO; and, 30% when there are three or more members of the DPM Complex also quoting at the best bid/offer on the Exchange. No other members of the DPM Complex other than the Preferred DPM will receive a participation entitlement, but may participate on a trade pursuant to CBOE Rule 6.45A. In no case would a DPM or e-DPM be allocated a total number of contracts greater than the number of contracts that the DPM or e-DPM is quoting. III. Discussion and Commission Findings The Commission has reviewed carefully the proposed rule change, comment letters, and the CBOE’s response and finds that the proposed rule change is consistent with the requirements of Section 6 of the Act 8 and the rules and regulations thereunder applicable to a national securities exchange 9 and, in particular, the requirements of Section 6(b)(5) of the Act.10 Section 6(b)(5) requires, among other things, that the rules of a national securities exchange be designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of 7 This paragraph was added to the proposed rule change pursuant to Amendment No. 1. 8 15 U.S.C. 78f. 9 In approving this proposal, the Commission has considered the proposed rule’s impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f). 10 15 U.S.C. 78f(b)(5). VerDate jul<14>2003 18:08 Jun 07, 2005 Jkt 205001 trade, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, to protect investors and the public interest. The Commission received four comment letters regarding the proposal, all of which opposed the proposal.11 The commenters criticized the proposal because they believe it would allow a DPM or e-DPM a guarantee based solely on its relationships with order entry firms rather than on such DPM’s or eDPM’s obligations. The commenters assert that the proposal would reward a DPM or e-DPM for its payment for order flow arrangements rather than the quality of its quotes, and therefore the proposal would have a negative impact on price competition.12 Two commenters also believed that the proposal did not address the possibility of coordinated actions between a DPM and an order entry firm.13 The Commission has previously approved rules that guarantee CBOE DPMs and e-DPMs a proportion of each order when the DPM’s or e-DPM’s quote is equal to the NBBO.14 The Commission has closely scrutinized exchange rule proposals to adopt or amend a specialist guarantee where the percentage of specialist participation would rise to a level that could have a material adverse impact on quote competition within a particular exchange.15 Because the proposal would not increase the overall percentage of an order that is guaranteed to the DPM Complex, but instead would reallocate that guarantee, the Commission does not believe the proposal will negatively impact quote competition on the CBOE. Under the proposal, the remaining portion of each order will still be allocated based on the competitive bidding of market participants. In addition, a Preferred DPM will have to be quoting at the NBBO at the time the order is received to capitalize on the guarantee. The Commission believes it is critical that the Preferred DPM cannot step up and match the NBBO after it receives an order, but must be publicly quoting at that price when the order is received. In this regard, the CBOE’s proposal prohibits supra note 4. e.g., ISE Letter, supra note 4, at 1–2; BOXR Letter, supra note 4, at 1–3; and Citadel Letter, supra note 4, at 2. 13 ISE Letter, supra note 4, at 5, and BOXR Letter, supra note 4, at 3. 14 See Securities Exchange Act Release No. 43004 (June 30, 2000) 65 FR 43060 (July 12, 2000) (SR– CBOE–98–54); see Securities Exchange Act Release No. 50003 (July 12, 2004), 69 FR 43028, (July 19, 2004) (SR–CBOE–2004–24). 15 See Securities Exchange Act Release No. 43100 (July 31, 2000), 65 FR 48788 (August 9, 2000). PO 00000 11 See 12 See, Frm 00125 Fmt 4703 Sfmt 4703 33565 an order flow provider from notifying a DPM or e-DPM regarding its intention to submit a Directed Order so that such DPM or e-DPM could change its quotation to match the NBBO immediately prior to submission of the preferenced order, and then fade its quote. In response to commenters’ concerns that its proposal failed to protect against coordinated actions between a DPM and an order entry firm, CBOE stated that its rules already provide the necessary protections against that type of conduct.16 Furthermore, the CBOE represents that it will proactively conduct surveillance for, and enforce against, such violations.17 One commenter states that DPMs and e-DPMs currently receive participation entitlements based on their obligations to the market.18 The commenter believes that the proposal, by allowing any directed market maker quoting at the NBBO to receive a guaranteed percentage of an order without in turn increasing such market maker’s obligations to the market, would ‘‘eliminate the incentive to be a specialist, thereby potentially leaving the obligations of the specialist to the market unfulfilled.’’ 19 The Commission does not believe that the proposal will result in the role of the specialist going unfulfilled, and notes that it recently approved an options exchange without specialists.20 Moreover, specialists’ obligations to the market have been reduced through other changes, including greater automation of functions previously handled manually by the specialist. While this proposal may reduce the incentive to be a specialist, the Commission does not believe that makes the proposal inconsistent with the Act. Finally, the Commission notes that DPMs and eDPMs have greater quoting obligations than other CBOE market makers who cannot be Preferred DPMs. Specifically, DPMs must provide continuous twosided market quotations for each class 16 CBOE Letter, supra note 5, at 4 (‘‘* * * CBOE Rule 4.18 expressly prohibits this sort of misuse of material, non-public information.’’). 17 See letter from Angelo Evangelou, Managing Senior Attorney, Legal Division, CBOE, to John Roeser, Assistant Director, Division of Market Regulation, Commission, dated May 27, 2005. 18 A DPM must maintain continuous quotes in every series of its assigned options classes. E-DPMs are required to continuously quote in 90% of series of each options class to which they are assigned. Market makers other than DPMs and e-DPMs are required to continuously quote only 60% of series to which they are assigned. 19 Citadel Letter, supra note 4, at 2. 20 See Securities Exchange Act Release No. 49068 (January 13, 2004), 69 FR 2775 (January 20, 2004) (order approving trading rules for the Boston Options Exchange Facility). E:\FR\FM\08JNN1.SGM 08JNN1 33566 Federal Register / Vol. 70, No. 109 / Wednesday, June 8, 2005 / Notices and series allocated to it,21 and e-DPMs must provide continuous two-sided market quotations in at least 90% of the series of each class allocated to it.22 To receive an allocation under this rule filing, the Preferred DPM must be quoting at the NBBO for the size of the allocation received. One commenter believes that the proposal is similar to facilitation guarantee programs and other directed order programs approved by the Commission.23 However, unlike those programs, the commenter criticizes that the proposal does not include certain protections for customers, such as providing the opportunity for price improvement, or limiting the program to a minimum number of contracts.24 This commenter did note, however, that the proposal would not ‘‘remove additional order flow from the auction in order to ’reward’ the preferred DPM. Rather, it is reallocating the specialist allocation among the DPMs when a member preferences one DPM.’’ 25 The Commission believes that the proposal is more akin to current participation entitlements, for DPMs and eDPMs, than the facilitation guarantee programs and other directed order programs cited by the commenter. As CBOE notes, unlike other programs, the Preferred DPM would not have an opportunity to ‘‘preview’’ an order to decide whether or not to trade with it.26 Moreover, unlike exchange facilitation guarantee programs,27 under the proposal, the preferred DPM would not be eligible for a participation entitlement unless it is publicly quoting at the NBBO at the time an order is received. Instead of changing its facilitation program rules, this proposal reallocates the current participation entitlement available for DPMs and eDPMs. The Commission believes this reallocation is consistent with the Act and will not affect the incentives of the trading crowd to compete aggressively for orders based on price. The Commission emphasizes that approval of this proposal does not affect a broker-dealer’s duty of best execution. A broker-dealer has a legal duty to seek to obtain best execution of customer orders, and any decision to preference a particular DPM or e-DPM must be 21 See CBOE Rule 8.85(a)(i). CBOE Rule 8.93(i). 23 ISE Letter, supra note 4, at 4. 24 Id. at 1–2. 25 Id. at 4. 26 CBOE Letter, supra note 5, at 2. 27 See CBOE Rule 6.74(d); ISE Rule 716(d); Pacific Exchange, Inc. Rule 6.47(b); American Stock Exchange, Inc. Rule 950(d), Commentary .02(d); and Philadelphia Stock Exchange, Inc. Rule 1064, Commentary .02. 22 See VerDate jul<14>2003 18:08 Jun 07, 2005 Jkt 205001 consistent with this duty.28 A brokerdealer’s duty of best execution derives from common law agency principles and fiduciary obligations, and is incorporated in SRO rules and, through judicial and Commission decisions, the antifraud provisions of the federal securities laws.29 The duty of best execution requires broker-dealers to execute customers’ trades at the most favorable terms reasonably available under the circumstances, i.e., at the best reasonably available price.30 The duty of best execution requires broker-dealers to periodically assess the quality of competing markets to assure that order flow is directed to the markets providing the most beneficial terms for their customer orders.31 Broker-dealers 28 See, e.g., Newton v. Merrill, Lynch, Pierce, Fenner & Smith, Inc., 135 F.3d 266, 269–70, 274 (3d Cir.), cert. denied, 525 U.S. 811 (1998); Certain Market Making Activities on Nasdaq, Securities Exchange Act Release No. 40900 (January 11, 1999) (settled case) (citing Sinclair v. SEC, 444 F.2d 399 (2d Cir. 1971); Arleen Hughes, 27 SEC 629, 636 (1948), aff’d sub nom. Hughes v. SEC, 174 F.2d 969 (D.C. Cir. 1949)). See also Order Execution Obligations, Securities Exchange Act Release No. 37619A (September 6, 1996), 61 FR 48290 (September 12, 1996) (‘‘Order Handling Rules Release’’). 29 Order Handling Rules Release, 61 FR at 48322. See also Newton, 135 F.3d at 270. Failure to satisfy the duty of best execution can constitute fraud because a broker-dealer, in agreeing to execute a customer’s order, makes an implied representation that it will execute it in a manner that maximizes the customer’s economic gain in the transaction. See Newton, 135 F.3d at 273 (‘‘[T]he basis for the duty of best execution is the mutual understanding that the client is engaging in the trade—and retaining the services of the broker as his agent— solely for the purpose of maximizing his own economic benefit, and that the broker receives her compensation because she assists the client in reaching that goal.’’); Marc N. Geman, Securities Exchange Act Release No. 43963 (February 14, 2001) (citing Newton, but concluding that respondent fulfilled his duty of best execution). See also Payment for Order Flow, Securities Exchange Act Release No. 34902 (October 27, 1994), 59 FR 55006, 55009 (Nov. 2, 1994) (‘‘Payment for Order Flow Final Rules’’). If the broker-dealer intends not to act in a manner that maximizes the customer’s benefit when he accepts the order and does not disclose this to the customer, the broker-dealer’s implied representation is false. See Newton, 135 F.3d at 273–274. 30 Newton, 135 F.3d at 270. Newton also noted certain factors relevant to best execution—order size, trading characteristics of the security, speed of execution, clearing costs, and the cost and difficulty of executing an order in a particular market. Id. at 270 n. 2 (citing Payment for Order Flow, Securities Exchange Act Release No. 33026 (October 6, 1993), 58 FR 52934, 52937–38 (October 13, 1993) (Proposed Rules)). See In re E.F. Hutton & Co. (‘‘Manning’’), Securities Exchange Act Release No. 25887 (July 6, 1988). See also Payment for Order Flow Final Rules, 59 FR at 55008–55009. 31 Order Handling Rules Release, 61 FR at 48322– 48333 (‘‘In conducting the requisite evaluation of its internal order handling procedures, a broker-dealer must regularly and rigorously examine execution quality likely to be obtained from different markets or market makers trading a security.’’). See also Newton, 135 F.3d at 271; Market 2000: An PO 00000 Frm 00126 Fmt 4703 Sfmt 4703 must examine their procedures for seeking to obtain best execution in light of market and technology changes and modify those practices if necessary to enable their customers to obtain the best reasonably available prices.32 In doing so, broker-dealers must take into account price improvement opportunities, and whether different markets may be more suitable for different types of orders or particular securities.33 The Commission notes that the proposed rule change would be implemented on a pilot basis for one year. During this time, the Commission intends to evaluate the impact of the proposal on the options markets to determine whether it would be beneficial to customers and to the options markets as a whole before approving any request for permanent approval of the pilot program. For these reasons, the Commission believes that the proposal is consistent with the requirements of Section 6(b)(5) of the Act,34 and will not jeopardize market integrity or the incentive for market participants to post competitive quotes.35 IV. Accelerated Approval of Amendment No. 1 Pursuant to Section 19(b)(2) of the Act,36 the Commission may not approve any proposed rule change, or amendment thereto, prior to the 30th day after the date of publication of notice of the filing thereof, unless the Commission finds good cause for so doing and publishes its reasons for so finding. The Commission hereby finds Examination of Current Equity Market Developments V–4 (SEC Division of Market Regulation January 1994) (‘‘Without specific instructions from a customer, however, a brokerdealer should periodically assess the quality of competing markets to ensure that its order flow is directed to markets providing the most advantageous terms for the customer’s order.’’); Payment for Order Flow Final Rules, 59 FR at 55009. 32 Order Handling Rules, 61 FR at 48323. 33 Order Handling Rules, 61 FR at 48323. For example, in connection with orders that are to be executed at a market opening price, ‘‘[b]rokerdealers are subject to a best execution duty in executing customer orders at the opening, and should take into account the alternative methods in determining how to obtain best execution for their customer orders.’’ Disclosure of Order Execution and Routing Practices, Securities Exchange Act Release No. 43590 (November 17, 2000), 65 FR 75414, 75422 (December 1, 2000) (adopting new Exchange Act Rules 11Ac1–5 and 11Ac1–6 and noting that alternative methods offered by some Nasdaq market centers for pre-open orders included the mid-point of the spread or at the bid or offer). 34 15 U.S.C. 78f(b)(5). 35 Approval of this proposal is in no way an endorsement of payment for order flow by the Commission. 36 15 U.S.C. 78s(b)(2). E:\FR\FM\08JNN1.SGM 08JNN1 33567 Federal Register / Vol. 70, No. 109 / Wednesday, June 8, 2005 / Notices good cause for approving Amendment No. 1 to the proposal, prior to the 30th day after publishing notice of Amendment No. 1 in the Federal Register. The Commission believes that it has received and fully considered meaningful comments with respect to the proposal, and that Amendment No. 1 does not raise any new regulatory issues that warrant further delay. In Amendment No. 1, the CBOE added language to the proposed rule text to clarify that if an e-DPM is the Preferred DPM for an order and the DPM is not also quoting at the NBBO, the remainder of the participation entitlement that is not allocated to the Preferred DPM is divided evenly among the remaining eDPMs on the Exchange quote. The Commission believes that the addition of the clarifying language is appropriate to provide for foreseeable scenarios regarding allocation of the participation entitlement for a Preferred DPM. V. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning Amendment No. 1, including whether Amendment No. 1 is consistent with the Act. Comments may be submitted by any of the following methods: public in accordance with the provisions of 5 U.S.C. 552, will be available for inspection and copying in the Commission’s Public Reference Section, 100 F Street, NE, Washington, DC 20549. Copies of such filing also will be available for inspection and copying at the principal office of the CBOE. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make publicly available. All submissions should refer to File Number SR–CBOE–2004–71 and should be submitted on or before June 29, 2005. VI. Conclusion It is therefore ordered, pursuant to Section 19(b)(2) of the Act,37 that the proposed rule change (SR–CBOE–2004– 71) be, and hereby is, approved, and that Amendment No. 1 to the proposed rule change be, and hereby is, approved on an accelerated basis, for a pilot period to expire on June 2, 2006. For the Commission, by the Division of Market Regulation, pursuant to delegated authority.38 Margaret H. McFarland, Deputy Secretary. [FR Doc. E5–2939 Filed 6–7–05; 8:45 am] BILLING CODE 8010–01–P Electronic Comments: • Use the Commission’s Internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an e-mail to rulecomments@sec.gov. Please include File Number SR–CBOE–2004–71 on the subject line. Paper comments: • Send paper comments in triplicate to Jonathan G. Katz, Secretary, Securities and Exchange Commission, Station Place, 100 F Street, NE, Washington, DC 20549–0609. All submissions should refer to File Number SR–CBOE–2004–71. This file number should be included on the subject line if e-mail is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s Internet Web site (https://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the VerDate jul<14>2003 18:08 Jun 07, 2005 Jkt 205001 I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to clarify that odd lot orders executed by CHX specialists shall be executed in accordance with CHX Article XX, Rule 37(a)(2), which governs execution of round lot orders by CHX specialists. The CHX has designated this proposal as non-controversial and has requested that the Commission waive the 30-day pre-operative waiting period contained in Rule 19b–4(f)(6)(iii) under the Act.5 The text of the proposed rule change is below. Proposed new language is italicized. * * * * * Article XXXI Odd Lots and Odd-Lot Dealers, Dual System * * [Release No. 34–51776; File No. SR–CHX– 2005–11] Self-Regulatory Organizations; Chicago Stock Exchange, Inc.; Notice of Filing and Immediate Effectiveness of Rule Change Relating to Transactions in Certain Odd-Lot Orders June 2, 2005. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’),1 and Rule 19b–4 thereunder,2 notice is hereby given that on May 6, 2005, the Chicago Stock Exchange, Inc. (‘‘CHX’’ or ‘‘Exchange’’), filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change as described in Items I and II below, which Items have been prepared by the CHX. The Exchange has filed the proposal pursuant to Section 19(b)(3)(A) of the Act 3 and Rule 19b–4(f)(6) U.S.C. 78s(b)(2). CFR 200.30–3(a)(12). 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 15 U.S.C. 78s(b)(3)(A). * * * * * * Rule 9. * SECURITIES AND EXCHANGE COMMISSION PO 00000 thereunder,4 which renders the proposal effective upon filing with the Commission. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. * Interpretations and Policies .01 No change to text. .02 Notwithstanding paragraph (b) of this Rule, if a CHX specialist is the registered odd-lot dealer for an issue, orders in such issue shall be executed in accordance with Article XX, Rule 37(a)(2). * * * * * II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, CHX included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. 37 15 38 17 Frm 00127 Fmt 4703 Sfmt 4703 4 17 5 17 E:\FR\FM\08JNN1.SGM CFR 240.19b–4(f)(6). CFR 240.19b–4(f)(6)(iii). 08JNN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 70, Number 109 (Wednesday, June 8, 2005)]
[Notices]
[Pages 33564-33567]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E5-2939]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-51779; File No. SR-CBOE-2004-71]


Self-Regulatory Organizations; Chicago Board Options Exchange, 
Inc.; Order Approving Proposed Rule Change and Notice of Filing and 
Order Granting Accelerated Approval to Amendment No. 1 Thereto To 
Modify the Distribution of the DPM Participation Entitlement for Orders 
Specifying a Preferred DPM Under CBOE Rule 8.87

June 2, 2005.

I. Introduction

    On November 10, 2004, the Chicago Board Options Exchange, Inc. 
(``CBOE'' or ``Exchange'') filed with the Securities and Exchange 
Commission (``Commission'') a proposed rule change pursuant to Section 
19(b)(1) of the Securities Exchange Act of 1934 (``Act'') \1\ and Rule 
19b-4 thereunder,\2\ to modify the distribution of the Designated 
Primary Market-Maker (``DPM'') participation entitlement for orders 
specifying a certain DPM or e-DPM (``Preferred DPM'') under CBOE Rule 
8.87. The proposed rule change was published for comment in the Federal 
Register on December 1, 2004.\3\ The Commission received four comment 
letters on the proposal.\4\ On January 13, 2005, the CBOE sent a 
response to the comment letters.\5\
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 50732 (November 23, 
2004), 69 FR 69967.
    \4\ See letter from Michael J. Simon, General Counsel and 
Secretary, International Securities Exchange, Inc. (``ISE''), to 
Jonathan G. Katz, Secretary, Commission, dated December 31, 2004 
(``ISE Letter''); letter from Michael J. Simon, General Counsel and 
Secretary, ISE, to Jonathan G. Katz, Secretary, Commission, dated 
January 13, 2005 (``ISE Letter 2''); letter from Kenneth R. 
Leibler, Chairman, Boston Options Exchange Regulation (``BOXR''), to 
Jonathan G. Katz, Secretary, Commission, dated January 19, 2004 
(sic) (``BOXR Letter''); and letter from Matthew Hinerfeld, Managing 
Director and Deputy General Counsel, Citadel Investment Group, 
L.L.C., on behalf of Citadel Derivatives Group LLC (``Citadel''), to 
Jonathan G. Katz, Secretary, Commission, dated April 6, 2005 
(``Citadel Letter'').
    \5\ See letter from Angelo Evangelou, Managing Senior Attorney, 
Legal Division, CBOE, to Jonathan G. Katz, Secretary, Commission, 
dated January 13, 2004 (``CBOE Letter'').
---------------------------------------------------------------------------

    On April 22, 2005, the CBOE filed Amendment No. 1 to the proposed 
rule change.\6\ This order approves the proposed rule change and 
simultaneously provides notice of filing and grants accelerated 
approval of Amendment No. 1.
---------------------------------------------------------------------------

    \6\ Amendment No. 1 added language to the proposed rule text to 
clarify that if an e-DPM is the Preferred DPM for an order and the 
DPM is not quoting at the NBBO, any remainder of the participation 
entitlement that is not allocated to the Preferred DPM would be 
divided evenly among the remaining e-DPMs quoting at the NBBO.
---------------------------------------------------------------------------

II. Description of the Proposed Rule Change

    The CBOE proposes to modify the participation entitlement for 
orders designated to a Preferred DPM on a one-year pilot basis. Only a 
DPM or e-DPMs allocated a particular option class would be eligible for 
the ``preferred'' designation in such class, and the Preferred DPM 
participation entitlement would only be granted if the Preferred DPM 
were quoting at the National Best Bid or Offer (``NBBO'') at the time 
the order is received and executed electronically by the CBOE Hybrid 
System. In addition, the participation entitlement is based on the 
number of contracts remaining after public customer orders on the book 
have been filled. The proposed participation entitlement for the 
Preferred DPM is as follows:
     If the Preferred DPM is an e-DPM, and the DPM is also 
quoting at the NBBO, then \2/3\ of the participation entitlement would 
be allocated to the Preferred DPM and the balance of the participation 
entitlement would be allocated to the DPM;
     If the Preferred DPM is an e-DPM, and the DPM is not 
quoting at the NBBO but one or more other e-DPMs are quoting at the 
NBBO, then \2/3\ of the participation entitlement would be

[[Page 33565]]

allocated to the Preferred DPM and the balance of the participation 
entitlement would be divided equally between the other e-DPMs also 
quoting at the NBBO; \7\
---------------------------------------------------------------------------

    \7\ This paragraph was added to the proposed rule change 
pursuant to Amendment No. 1.
---------------------------------------------------------------------------

     If the Preferred DPM is the DPM, and one or more e-DPMs 
are also quoting at the NBBO, then \2/3\ of the participation 
entitlement would be allocated to the Preferred DPM and the balance of 
the participation entitlement would be divided equally between the e-
DPMs quoting at the NBBO;
     If the Preferred DPM is not quoting at the NBBO, then the 
Preferred DPM participation entitlement would not apply and the 
``regular'' participation entitlement set forth in subparagraph (b)(3) 
of CBOE Rule 8.87 would apply; and,
     If the DPM and e-DPMs (collectively ``DPM Complex'') are 
the only CBOE members quoting at the NBBO then the participation 
entitlement applicable to the Preferred DPM would be: 50% when there is 
one other member of the DPM Complex also quoting at the NBBO; 40% when 
there are two other members of the DPM Complex quoting at the NBBO; 
and, 30% when there are three or more members of the DPM Complex also 
quoting at the best bid/offer on the Exchange. No other members of the 
DPM Complex other than the Preferred DPM will receive a participation 
entitlement, but may participate on a trade pursuant to CBOE Rule 
6.45A.
    In no case would a DPM or e-DPM be allocated a total number of 
contracts greater than the number of contracts that the DPM or e-DPM is 
quoting.

III. Discussion and Commission Findings

    The Commission has reviewed carefully the proposed rule change, 
comment letters, and the CBOE's response and finds that the proposed 
rule change is consistent with the requirements of Section 6 of the Act 
\8\ and the rules and regulations thereunder applicable to a national 
securities exchange \9\ and, in particular, the requirements of Section 
6(b)(5) of the Act.\10\ Section 6(b)(5) requires, among other things, 
that the rules of a national securities exchange be designed to prevent 
fraudulent and manipulative acts and practices, to promote just and 
equitable principles of trade, to remove impediments to and perfect the 
mechanism of a free and open market and a national market system, and, 
in general, to protect investors and the public interest.
---------------------------------------------------------------------------

    \8\ 15 U.S.C. 78f.
    \9\ In approving this proposal, the Commission has considered 
the proposed rule's impact on efficiency, competition, and capital 
formation. 15 U.S.C. 78c(f).
    \10\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Commission received four comment letters regarding the 
proposal, all of which opposed the proposal.\11\ The commenters 
criticized the proposal because they believe it would allow a DPM or e-
DPM a guarantee based solely on its relationships with order entry 
firms rather than on such DPM's or e-DPM's obligations. The commenters 
assert that the proposal would reward a DPM or e-DPM for its payment 
for order flow arrangements rather than the quality of its quotes, and 
therefore the proposal would have a negative impact on price 
competition.\12\ Two commenters also believed that the proposal did not 
address the possibility of coordinated actions between a DPM and an 
order entry firm.\13\
---------------------------------------------------------------------------

    \11\ See supra note 4.
    \12\ See, e.g., ISE Letter, supra note 4, at 1-2; BOXR Letter, 
supra note 4, at 1-3; and Citadel Letter, supra note 4, at 2.
    \13\ ISE Letter, supra note 4, at 5, and BOXR Letter, supra note 
4, at 3.
---------------------------------------------------------------------------

    The Commission has previously approved rules that guarantee CBOE 
DPMs and e-DPMs a proportion of each order when the DPM's or e-DPM's 
quote is equal to the NBBO.\14\ The Commission has closely scrutinized 
exchange rule proposals to adopt or amend a specialist guarantee where 
the percentage of specialist participation would rise to a level that 
could have a material adverse impact on quote competition within a 
particular exchange.\15\ Because the proposal would not increase the 
overall percentage of an order that is guaranteed to the DPM Complex, 
but instead would reallocate that guarantee, the Commission does not 
believe the proposal will negatively impact quote competition on the 
CBOE. Under the proposal, the remaining portion of each order will 
still be allocated based on the competitive bidding of market 
participants.
---------------------------------------------------------------------------

    \14\ See Securities Exchange Act Release No. 43004 (June 30, 
2000) 65 FR 43060 (July 12, 2000) (SR-CBOE-98-54); see Securities 
Exchange Act Release No. 50003 (July 12, 2004), 69 FR 43028, (July 
19, 2004) (SR-CBOE-2004-24).
    \15\ See Securities Exchange Act Release No. 43100 (July 31, 
2000), 65 FR 48788 (August 9, 2000).
---------------------------------------------------------------------------

    In addition, a Preferred DPM will have to be quoting at the NBBO at 
the time the order is received to capitalize on the guarantee. The 
Commission believes it is critical that the Preferred DPM cannot step 
up and match the NBBO after it receives an order, but must be publicly 
quoting at that price when the order is received. In this regard, the 
CBOE's proposal prohibits an order flow provider from notifying a DPM 
or e-DPM regarding its intention to submit a Directed Order so that 
such DPM or e-DPM could change its quotation to match the NBBO 
immediately prior to submission of the preferenced order, and then fade 
its quote. In response to commenters' concerns that its proposal failed 
to protect against coordinated actions between a DPM and an order entry 
firm, CBOE stated that its rules already provide the necessary 
protections against that type of conduct.\16\ Furthermore, the CBOE 
represents that it will proactively conduct surveillance for, and 
enforce against, such violations.\17\
---------------------------------------------------------------------------

    \16\ CBOE Letter, supra note 5, at 4 (``* * * CBOE Rule 4.18 
expressly prohibits this sort of misuse of material, non-public 
information.'').
    \17\ See letter from Angelo Evangelou, Managing Senior Attorney, 
Legal Division, CBOE, to John Roeser, Assistant Director, Division 
of Market Regulation, Commission, dated May 27, 2005.
---------------------------------------------------------------------------

    One commenter states that DPMs and e-DPMs currently receive 
participation entitlements based on their obligations to the 
market.\18\ The commenter believes that the proposal, by allowing any 
directed market maker quoting at the NBBO to receive a guaranteed 
percentage of an order without in turn increasing such market maker's 
obligations to the market, would ``eliminate the incentive to be a 
specialist, thereby potentially leaving the obligations of the 
specialist to the market unfulfilled.'' \19\ The Commission does not 
believe that the proposal will result in the role of the specialist 
going unfulfilled, and notes that it recently approved an options 
exchange without specialists.\20\ Moreover, specialists' obligations to 
the market have been reduced through other changes, including greater 
automation of functions previously handled manually by the specialist. 
While this proposal may reduce the incentive to be a specialist, the 
Commission does not believe that makes the proposal inconsistent with 
the Act. Finally, the Commission notes that DPMs and e-DPMs have 
greater quoting obligations than other CBOE market makers who cannot be 
Preferred DPMs. Specifically, DPMs must provide continuous two-sided 
market quotations for each class

[[Page 33566]]

and series allocated to it,\21\ and e-DPMs must provide continuous two-
sided market quotations in at least 90% of the series of each class 
allocated to it.\22\ To receive an allocation under this rule filing, 
the Preferred DPM must be quoting at the NBBO for the size of the 
allocation received.
---------------------------------------------------------------------------

    \18\ A DPM must maintain continuous quotes in every series of 
its assigned options classes. E-DPMs are required to continuously 
quote in 90% of series of each options class to which they are 
assigned. Market makers other than DPMs and e-DPMs are required to 
continuously quote only 60% of series to which they are assigned.
    \19\ Citadel Letter, supra note 4, at 2.
    \20\ See Securities Exchange Act Release No. 49068 (January 13, 
2004), 69 FR 2775 (January 20, 2004) (order approving trading rules 
for the Boston Options Exchange Facility).
    \21\ See CBOE Rule 8.85(a)(i).
    \22\ See CBOE Rule 8.93(i).
---------------------------------------------------------------------------

    One commenter believes that the proposal is similar to facilitation 
guarantee programs and other directed order programs approved by the 
Commission.\23\ However, unlike those programs, the commenter 
criticizes that the proposal does not include certain protections for 
customers, such as providing the opportunity for price improvement, or 
limiting the program to a minimum number of contracts.\24\ This 
commenter did note, however, that the proposal would not ``remove 
additional order flow from the auction in order to 'reward' the 
preferred DPM. Rather, it is reallocating the specialist allocation 
among the DPMs when a member preferences one DPM.'' \25\
---------------------------------------------------------------------------

    \23\ ISE Letter, supra note 4, at 4.
    \24\ Id. at 1-2.
    \25\ Id. at 4.
---------------------------------------------------------------------------

    The Commission believes that the proposal is more akin to current 
participation entitlements, for DPMs and eDPMs, than the facilitation 
guarantee programs and other directed order programs cited by the 
commenter. As CBOE notes, unlike other programs, the Preferred DPM 
would not have an opportunity to ``preview'' an order to decide whether 
or not to trade with it.\26\ Moreover, unlike exchange facilitation 
guarantee programs,\27\ under the proposal, the preferred DPM would not 
be eligible for a participation entitlement unless it is publicly 
quoting at the NBBO at the time an order is received. Instead of 
changing its facilitation program rules, this proposal reallocates the 
current participation entitlement available for DPMs and eDPMs. The 
Commission believes this reallocation is consistent with the Act and 
will not affect the incentives of the trading crowd to compete 
aggressively for orders based on price.
---------------------------------------------------------------------------

    \26\ CBOE Letter, supra note 5, at 2.
    \27\ See CBOE Rule 6.74(d); ISE Rule 716(d); Pacific Exchange, 
Inc. Rule 6.47(b); American Stock Exchange, Inc. Rule 950(d), 
Commentary .02(d); and Philadelphia Stock Exchange, Inc. Rule 1064, 
Commentary .02.
---------------------------------------------------------------------------

    The Commission emphasizes that approval of this proposal does not 
affect a broker-dealer's duty of best execution. A broker-dealer has a 
legal duty to seek to obtain best execution of customer orders, and any 
decision to preference a particular DPM or e-DPM must be consistent 
with this duty.\28\ A broker-dealer's duty of best execution derives 
from common law agency principles and fiduciary obligations, and is 
incorporated in SRO rules and, through judicial and Commission 
decisions, the antifraud provisions of the federal securities laws.\29\
---------------------------------------------------------------------------

    \28\ See, e.g., Newton v. Merrill, Lynch, Pierce, Fenner & 
Smith, Inc., 135 F.3d 266, 269-70, 274 (3d Cir.), cert. denied, 525 
U.S. 811 (1998); Certain Market Making Activities on Nasdaq, 
Securities Exchange Act Release No. 40900 (January 11, 1999) 
(settled case) (citing Sinclair v. SEC, 444 F.2d 399 (2d Cir. 1971); 
Arleen Hughes, 27 SEC 629, 636 (1948), aff'd sub nom. Hughes v. SEC, 
174 F.2d 969 (D.C. Cir. 1949)). See also Order Execution 
Obligations, Securities Exchange Act Release No. 37619A (September 
6, 1996), 61 FR 48290 (September 12, 1996) (``Order Handling Rules 
Release'').
    \29\ Order Handling Rules Release, 61 FR at 48322. See also 
Newton, 135 F.3d at 270. Failure to satisfy the duty of best 
execution can constitute fraud because a broker-dealer, in agreeing 
to execute a customer's order, makes an implied representation that 
it will execute it in a manner that maximizes the customer's 
economic gain in the transaction. See Newton, 135 F.3d at 273 
(``[T]he basis for the duty of best execution is the mutual 
understanding that the client is engaging in the trade--and 
retaining the services of the broker as his agent--solely for the 
purpose of maximizing his own economic benefit, and that the broker 
receives her compensation because she assists the client in reaching 
that goal.''); Marc N. Geman, Securities Exchange Act Release No. 
43963 (February 14, 2001) (citing Newton, but concluding that 
respondent fulfilled his duty of best execution). See also Payment 
for Order Flow, Securities Exchange Act Release No. 34902 (October 
27, 1994), 59 FR 55006, 55009 (Nov. 2, 1994) (``Payment for Order 
Flow Final Rules''). If the broker-dealer intends not to act in a 
manner that maximizes the customer's benefit when he accepts the 
order and does not disclose this to the customer, the broker-
dealer's implied representation is false. See Newton, 135 F.3d at 
273-274.
---------------------------------------------------------------------------

    The duty of best execution requires broker-dealers to execute 
customers' trades at the most favorable terms reasonably available 
under the circumstances, i.e., at the best reasonably available 
price.\30\ The duty of best execution requires broker-dealers to 
periodically assess the quality of competing markets to assure that 
order flow is directed to the markets providing the most beneficial 
terms for their customer orders.\31\ Broker-dealers must examine their 
procedures for seeking to obtain best execution in light of market and 
technology changes and modify those practices if necessary to enable 
their customers to obtain the best reasonably available prices.\32\ In 
doing so, broker-dealers must take into account price improvement 
opportunities, and whether different markets may be more suitable for 
different types of orders or particular securities.\33\
---------------------------------------------------------------------------

    \30\ Newton, 135 F.3d at 270. Newton also noted certain factors 
relevant to best execution--order size, trading characteristics of 
the security, speed of execution, clearing costs, and the cost and 
difficulty of executing an order in a particular market. Id. at 270 
n. 2 (citing Payment for Order Flow, Securities Exchange Act Release 
No. 33026 (October 6, 1993), 58 FR 52934, 52937-38 (October 13, 
1993) (Proposed Rules)). See In re E.F. Hutton & Co. (``Manning''), 
Securities Exchange Act Release No. 25887 (July 6, 1988). See also 
Payment for Order Flow Final Rules, 59 FR at 55008-55009.
    \31\ Order Handling Rules Release, 61 FR at 48322-48333 (``In 
conducting the requisite evaluation of its internal order handling 
procedures, a broker-dealer must regularly and rigorously examine 
execution quality likely to be obtained from different markets or 
market makers trading a security.''). See also Newton, 135 F.3d at 
271; Market 2000: An Examination of Current Equity Market 
Developments V-4 (SEC Division of Market Regulation January 1994) 
(``Without specific instructions from a customer, however, a broker-
dealer should periodically assess the quality of competing markets 
to ensure that its order flow is directed to markets providing the 
most advantageous terms for the customer's order.''); Payment for 
Order Flow Final Rules, 59 FR at 55009.
    \32\ Order Handling Rules, 61 FR at 48323.
    \33\ Order Handling Rules, 61 FR at 48323. For example, in 
connection with orders that are to be executed at a market opening 
price, ``[b]roker-dealers are subject to a best execution duty in 
executing customer orders at the opening, and should take into 
account the alternative methods in determining how to obtain best 
execution for their customer orders.'' Disclosure of Order Execution 
and Routing Practices, Securities Exchange Act Release No. 43590 
(November 17, 2000), 65 FR 75414, 75422 (December 1, 2000) (adopting 
new Exchange Act Rules 11Ac1-5 and 11Ac1-6 and noting that 
alternative methods offered by some Nasdaq market centers for pre-
open orders included the mid-point of the spread or at the bid or 
offer).
---------------------------------------------------------------------------

    The Commission notes that the proposed rule change would be 
implemented on a pilot basis for one year. During this time, the 
Commission intends to evaluate the impact of the proposal on the 
options markets to determine whether it would be beneficial to 
customers and to the options markets as a whole before approving any 
request for permanent approval of the pilot program.
    For these reasons, the Commission believes that the proposal is 
consistent with the requirements of Section 6(b)(5) of the Act,\34\ and 
will not jeopardize market integrity or the incentive for market 
participants to post competitive quotes.\35\
---------------------------------------------------------------------------

    \34\ 15 U.S.C. 78f(b)(5).
    \35\ Approval of this proposal is in no way an endorsement of 
payment for order flow by the Commission.
---------------------------------------------------------------------------

IV. Accelerated Approval of Amendment No. 1

    Pursuant to Section 19(b)(2) of the Act,\36\ the Commission may not 
approve any proposed rule change, or amendment thereto, prior to the 
30th day after the date of publication of notice of the filing thereof, 
unless the Commission finds good cause for so doing and publishes its 
reasons for so finding. The Commission hereby finds

[[Page 33567]]

good cause for approving Amendment No. 1 to the proposal, prior to the 
30th day after publishing notice of Amendment No. 1 in the Federal 
Register.
---------------------------------------------------------------------------

    \36\ 15 U.S.C. 78s(b)(2).
---------------------------------------------------------------------------

    The Commission believes that it has received and fully considered 
meaningful comments with respect to the proposal, and that Amendment 
No. 1 does not raise any new regulatory issues that warrant further 
delay. In Amendment No. 1, the CBOE added language to the proposed rule 
text to clarify that if an e-DPM is the Preferred DPM for an order and 
the DPM is not also quoting at the NBBO, the remainder of the 
participation entitlement that is not allocated to the Preferred DPM is 
divided evenly among the remaining e-DPMs on the Exchange quote. The 
Commission believes that the addition of the clarifying language is 
appropriate to provide for foreseeable scenarios regarding allocation 
of the participation entitlement for a Preferred DPM.

V. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning Amendment No. 1, including whether Amendment No. 1 
is consistent with the Act. Comments may be submitted by any of the 
following methods:

Electronic Comments:

     Use the Commission's Internet comment form (https://
www.sec.gov/rules/sro.shtml); or
     Send an e-mail to rule-comments@sec.gov. Please include 
File Number SR-CBOE-2004-71 on the subject line.

Paper comments:

     Send paper comments in triplicate to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, Station Place, 100 F 
Street, NE, Washington, DC 20549-0609.
    All submissions should refer to File Number SR-CBOE-2004-71. This 
file number should be included on the subject line if e-mail is used. 
To help the Commission process and review your comments more 
efficiently, please use only one method. The Commission will post all 
comments on the Commission's Internet Web site (https://www.sec.gov/
rules/sro.shtml). Copies of the submission, all subsequent amendments, 
all written statements with respect to the proposed rule change that 
are filed with the Commission, and all written communications relating 
to the proposed rule change between the Commission and any person, 
other than those that may be withheld from the public in accordance 
with the provisions of 5 U.S.C. 552, will be available for inspection 
and copying in the Commission's Public Reference Section, 100 F Street, 
NE, Washington, DC 20549. Copies of such filing also will be available 
for inspection and copying at the principal office of the CBOE. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make publicly available. All 
submissions should refer to File Number SR-CBOE-2004-71 and should be 
submitted on or before June 29, 2005.

VI. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\37\ that the proposed rule change (SR-CBOE-2004-71) be, and hereby 
is, approved, and that Amendment No. 1 to the proposed rule change be, 
and hereby is, approved on an accelerated basis, for a pilot period to 
expire on June 2, 2006.
---------------------------------------------------------------------------

    \37\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\38\
---------------------------------------------------------------------------

    \38\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5-2939 Filed 6-7-05; 8:45 am]
BILLING CODE 8010-01-P

This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.